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Chesapeake Bay Bill Proposes to Improve Water Quality Through a “Cap and Trade” Program

December 2, 2009

A proposal pending in Congress aims to reduce nutrient loadings to the Chesapeake Bay through a mandatory water quality “cap and trade” program. Water quality trading – much like the cap and trade programs being debated in Congress to address climate change[1] – allows facilities to meet regulatory limits by purchasing or generating credits from other sources. The draft legislation, called the Chesapeake Clean Water and Ecosystem Restoration Act of 2009 (Bill),[2] would require EPA to develop – by May 2012 – a nitrogen and phosphorus trading program for the Bay. The Chesapeake watershed crosses the boundaries of six states and the District of Columbia. Similar programs exist elsewhere in the United States, but none approach this scale.

Recent Developments Regarding the Chesapeake Bay Program

The Chesapeake Bay is the largest estuary in North America. It draws from a 64,000 square mile watershed in six states[3] and the District of Columbia, and includes nearly 100,000 streams. For years, the Chesapeake Bay Program has involved the coordination of multiple interstate and local organizations. Despite significant reductions from point sources, nutrient loadings from stormwater runoff are still increasing.[4]

Earlier this year, the Chesapeake Executive Council adopted a new strategy for reducing pollution within the Bay,[5] President Obama issued a Chesapeake Bay Protection and Restoration Executive Order,[6] federal agencies issued draft reports required under the Executive Order,[7] and, in early November, EPA issued letters to the Chesapeake Bay states and the District of Columbia that establish several requirements for meeting water quality standards for nutrients by 2025, including the goal of achieving 60 percent of total nutrient loadings by 2017.[8] In September 2009, EPA issued a notice of intent to develop a TMDL for the Chesapeake Bay watershed.[9] The Chesapeake TMDL would combine nearly 100 TMDLs for smaller segments of the Chesapeake into a nutrient and sediment pollution budget for the Chesapeake watershed as a whole. EPA is under court order to complete the TMDL by May 11, 2011.[10]

Trading Provisions in the Chesapeake Bay Bill

The Bill would require EPA to establish, by May 12, 2012, an interstate nitrogen and phosphorus trading program between point and nonpoint sources to facilitate the Chesapeake Bay TMDL for nutrients.[11] The Bill includes several broad yet potentially complex requirements for the trading program, and leaves the details of the program to EPA. Among other things, the trading program must: define and create standards for nitrogen and phosphorus credits; establish procedures or standards for certifying and verifying credits, and for generating, quantifying, trading, and applying credits to meet regulatory requirements and allow for trading between and across point and nonpoint sources; establish baseline requirements for eligible credit sales; ensure that credits are used in accordance with NPDES permits; ensure that trading will not cause or contribute to the impairment of receiving waters; allow for third parties to aggregate and bank credits; and facilitate trading by minimizing risk and uncertainty for market participants and increasing administrative efficacy.

Although nutrient trading programs are already in place or in development in some smaller areas within the Chesapeake watershed,[12] the Bill would usher in the largest and most complex nutrient trading program in the country. The majority of continued water quality trading to date has occurred in a Connecticut program to address nutrient pollution in Long Island Sound. That program, which began in 2002, only addresses publicly owned treatment works in Connecticut.[13]

Water quality trading programs have recently gained momentum as a tool for addressing nutrient pollution, particularly because nutrient loading frequently results from diffuse, nonpoint sources that are not regulated under traditional Clean Water Act (CWA) programs, but that can often reduce nutrient loadings at a lower cost than other sources.[14] In a 2003 policy statement, EPA formally endorsed water quality trading as a method to “achieve water quality and environmental benefits greater than would otherwise be achieved under more traditional regulatory approaches,” and specifically encouraged the development of water quality trading programs for nutrients and sediments.[15] In part driven by the relatively small number of active trading programs, EPA recently evaluated the effectiveness of EPA’s efforts to support water quality trading and to determine how to further encourage its development.[16]

In October, EPA and the Department of Agriculture guaranteed $1.3 million toward developing a nutrient cap and trade plan in an eight-state portion of the Ohio River Basin.[17] The Ohio River Basin, which covers parts of 14 states, contributes about of third of the water flowing down the Mississippi River to the Gulf of Mexico, which has been impacted by decreased oxygen levels. Nutrient reductions from agriculture and other nonpoint sources – considered a major source of nutrient loadings within the Ohio River Basin – could provide credits to some point sources, such as power plants and other industrial sources, that face high costs in reducing their nutrient discharges.[18]

Other Major Provisions in the Bill

In addition to the water quality trading provisions, the Bill would require states within the watershed to prepare watershed implementation plans (WIPs) by May 12, 2011 for each of the 92 tidal water segments that are subject to the jurisdiction of the states. The WIPs would have to include reduction targets, key actions, schedules, and enforcement mechanisms for reducing nutrient loads from point and nonpoint sources, and the states would have to fully implement the WIPs by 2025.[19] Failure to submit a WIP would subject a state to federal enforcement and citizen suits.[20] Additionally, beginning in 2013, states would be required to adjust stormwater permits issued under CWA Section 402 according to EPA rulemaking and several requirements.[21] For development projects with an impervious footprint that exceeds a threshold established by EPA rulemaking, states in the watershed would be required to ensure that the projects use site planning, design, construction, and maintenance strategies that, to the maximum extent technically feasible, will maintain or restore the predevelopment hydrology of the property, or otherwise mitigate the unavoidable impacts of the project. The Bill also requires states to implement bans on the use, sale, manufacture, or distribution of most phosphorus-containing cleaning agents, such as laundry or dishwashing detergents, subject to EPA rulemaking,[22] and establishes guidance, model ordinances, and a grants program for managing stormwater runoff.[23]

For more information on water quality issues, including nutrients, please contact any member of Marten Law Group’s Water Quality practice group.

[1] See One Way or Another – Senate Climate Change Bill Introduced; EPA Proposes to Regulate GHGs from Stationary Sources; And Court Allows GHG Nuisance Suit to Proceed, Marten Law Group Environmental News (Oct. 1, 2009).

[2] The House Bill, H.R. 3852, introduced by Representative Elijah Cummings (D-Md.), and the Senate Bill, S. 1816, introduced by Senator Ben Cardin (D-Md.), are nearly identical. Unless otherwise noted, Bill citations in this article refer to the proposed CWA citations in the Senate Bill.

[3] The states within the watershed are Maryland, Virginia, Pennsylvania, Delaware, New York, and West Virginia.

[4] According to the Bill, about 58% of the watershed is still undeveloped and mostly forested, but development is increasing. For example, between 1990 and 2000, impervious surfaces within the watershed increased by about 41%.

[5] Chesapeake Bay Program, New Course Charted for the Chesapeake Bay’s Recovery (May 12, 2009). The strategy includes commitments from the states to implement policies and programs necessary to restore the Bay by 2025, to meet biennial pollution reduction milestones to accelerate the rate of nutrient reductions, and to consider enforcement mechanisms for meeting these deadlines.

[6] Among other things, the Executive Order declared the Chesapeake Bay a national treasure, required federal agencies to create reports regarding the challenges and strategies for restoring the Bay and its tributaries, and established a Federal Leadership Committee, chaired by EPA, to integrate these reports into a strategy for implementing federal efforts to restore the Bay.

[7] EPA Press Release, Federal Agencies Release Draft Reports Required by Chesapeake Bay Executive Order (Sept. 10, 2009).

[8] EPA News Release, EPA Sets Expectations for Chesapeake Bay States and D.C. to Reduce Water Pollution (Nov. 4, 2009).

[9] 74 Fed. Reg. 47792 (Sept. 17, 2009).

[10] Id. at 47794. There will be a series of public meetings regarding the Chesapeake TMDL held in several locations during December 2009. See EPA, Chesapeake Bay TMDL Events.

[11] Bill Section 117(j)(6).

[12] See Chesapeake Bay Foundation, Nutrient Trading; see also Pennsylvania Department of Environmental Protection, Nutrient Trading, Chesapeake Bay Watershed (Apr. 2009);

[13] See Connecticut Department of Environmental Protection, Connecticut Water Quality Trading Program Awarded First EPA “Blue Ribbon” Award. In that program, Connecticut established a cap for all POTWs, buys a credit from each facility that discharges less than its nutrient allotment, and requires each facility that fails to meet its allotment to buy those credits.

[14] See World Resources Institute, Water Quality Trading Programs: An International Overview (Mar. 2009); World Resources Institute, Review of Water Quality Cap and Trade Programs (June 11, 2008).

[15] EPA, Water Quality Trading Policy (Jan. 13, 2003). In 2004, EPA issued a handbook to assist interested parties in evaluating whether water quality trading is appropriate in various circumstances. EPA, Water Quality Trading Assessment Handbook (Nov. 2004).

[16] EPA, Water Quality Trading Evaluation (Oct. 2008).

[17] Taryn Luntz, U.S. Provides Grant for Cap-and-Trade Plan in Ohio River Basin, Greenwire (Oct. 15, 2009) [subscription required]. American Farmland Trust, Press Release: Multi-State Water Quality Trading Effort Launched in Ohio River Basin, (Oct. 20, 2009). Electric Power Research Institute, EPRI Wins $1.3 million in Federal Grants for Water Quality Trading Program (Oct. 13, 2009).

[18] See American Farmland Trust, Press Release: Multi-State Water Quality Trading Effort Launched in Ohio River Basin, (Oct. 20, 2009); Electric Power Research Institute, Regional Water Quality Trading in the Ohio River Basin (Apr. 2009).

[19] Bill Section 117(i)(1).

[20] Bill Section 117(n).

[21] Bill Section 117(i)(3).

[22] Bill Section 117(i)(4).

[23] Bill Section 117(j).

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